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Court rules Costa Rica’s fiscal reform bill unconstitutional

April 10, 2012

Late Tuesday afternoon, the Constitutional Chamber of Costa Rica’s Supreme Court (Sala IV) unanimously declared a proposed tax reform bill unconstitutional. The bill, promoted by President Laura Chinchilla’s administration, had passed a first round of legislative debates before the Sala IV took up the case following an injunction filed by a legislator.

Problems cited by the judges included: procedures that were not properly followed when extending debate deadlines; and 53 motions that were not published in the official government newspaper La Gaceta. Those motions caused substantial changes to the bill.

The month of April has been fraught with issues for Chinchilla’s government after her finance minister – who played a key role in drafting the proposed legislation – resigned. Now the government must regroup, as the reform bill returns to a legislative commission, where the process for its approval begins anew. A new or modified bill must be reviewed by an advisory committee before lawmakers can bring it to a first round of voting.

The primary goal of the fiscal reform package was to make tax collection 1.5 percent of gross domestic product. The most significant change proposed to accomplish that is an increase from a 13 percent sales tax to a 14 percent value-added tax.

Economic disaster could befall Costa Rica if reforms do not take place, say experts. Government debt is nearing 6 percent of GDP, and the gap is expected to widen, possibly to 10 percent if reforms are not passed by 2014, according to Central Bank officials.

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